Business Tax Incentives in Ohio, Kentucky in Question

Jan. 11, 2005--The state of Ohio is taking a long look at their tax plan and putting their Technology Investment Tax Credit, along with just about everything else in their tax code, up for review on effectiveness and application, which has some industry experts concerned about thinning of entrepreneurial ventures in the state.

"This credit is very important to startups and angel investors," Mark Butterworth, chairman of Ohio's Industrial Technology and Enterprise Advisory Council said. "In effect, for every 75 cents in cash they invest in a company they purchase $1 worth of equity."

The Buckeye state is facing a projected $4 billion to $5 billion deficit and this tax incentive plan, which has an annual-price tag of $2 million, is on the long list of proposed cuts. Ohio investors say the tax cut is responsible for 131 tech companies -- which are worth a combined $45 million. But Ohio officials state plainly that if Governor Bob Taft is in the business of being anti-business, he won't be governor for long.

"More than 80% of all business in Ohio is because of small business," Bill Teets, spokesman for the Ohio Department of Development, said. "If any tax incentives are going to be cut, it will be in lieu of an overall better, more pro-business tax scheme."

The Bluegrass State is also slowly giving the axe to an incentive plan that makes certain machinery, equipment and building supplies tax-exempt to small business owners. The plan, called the Enterprise Zone Program, was enacted in the mid-80s and gave 10 economically challenged regions across Kentucky the tax-free benefit for 20 years; six regions still have the benefit, but none are expected to be renewed.

"We're losing one more tool in our arsenal of incentives," Steve Stevens, senior vice president of public affairs for the Northern Kentucky Chamber of Commerce, said. "It is very disappointing."

Due to the continual state of change in the political arena, George Lipper, editor of the National Association of Seed & Venture Capital's weekly newsletter, says this type of change is common, but also alarming.

"Public policy changes frequently and with it so do business-friendly policies," Lipper said. "States need to find a way to spark business investment, if not by tax-incentives then by other means."

The 2004 State Business Climate Index, a study done by the non-profit Tax Federation, gave both states poor rankings in how "business-friendly" their tax systems were -- Ohio came in at #29 and Kentucky at #44.